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Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-28 · 53 added, 116 removed, 128 unchanged (57% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes thereto set forth in Item 8 of this report.

Discussion of the year ended December 31, 2023, compared to the year ended December 31, 2022 is included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, and is incorporated by reference into this Form 10-K.

We design, develop, manufacture, market and sell medical products for interventional and diagnostic procedures.

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For the year ended December 31, 2024, we reported sales of $1.357 billion, up $99.1 million or 7.9%, compared to 2023 sales of $1.257 billion.

Our revenue results for the year ended December 31, 2023 were driven primarily by stronger-than-anticipated demand in the U.S.

and more favorable than anticipated international sales trends, particularly in the EMEA and “Rest of World” (“ROW”) regions.

Our revenue results for the year ended December 31, 2024 were driven primarily by demand in the U.S.

and favorable international sales trends, particularly in Europe, the Middle East and Africa (“EMEA”) and in the “Rest of World” (“ROW”) regions.

Gross profit as a percentage of sales was 47.4% for the year ended December 31, 2024 as compared to 46.4% for the year ended December 31, 2023.

Net income for the year ended December 31, 2024 was $120.4 million, or $2.03 per share, as compared to $94.4 million, or $1.62 per share, for the year ended December 31, 2023.

In June 2023, we completed the acquisition of a portfolio of dialysis catheter products and the BioSentry Biopsy Tract Sealant System from AngioDynamics and acquisition of the Surfacer Inside-Out Access Catheter System from Bluegrass.

On November 10, 2020, we introduced a corporate transformation initiative known as “Foundations for Growth” with multi-year financial targets for growth and improved profitability.

We completed the final year of our Foundations for Growth Program, delivering or exceeding each of the financial targets we outlined for the three-year period ending December 31, 2023.

We are introducing the “Continued Growth Initiatives” Program and new multi-year financial targets for the three-year period ending December 31, 2026.

On December 8, 2023, we closed an offering of $747.5 million aggregate principal amount of its 3.00% Convertible Senior Notes due 2029 (the “Convertible Notes”).

We intend to use the proceeds from the Notes offering for general corporate purposes, which may include repayment or reduction of existing debt, sales and marketing activities, medical affairs and educational efforts, research and development, clinical studies, working capital, capital expenditures and investments in and acquisitions of other companies, products or technologies in the future.

In July 2024, we executed an asset purchase agreement with EndoGastric Solutions, Inc.

(“EGS”), acquiring the EsophyX® Z+ device which delivers a durable, minimally invasive non-pharmacological treatment option for patients suffering from GERD.

In November 2024, we completed the acquisition of a portfolio of Lead Management products from Cook Medical.

On February 28, 2024, we introduced our “Continued Growth initiatives” Program with muti-year financial targets for the three-year period ending December 31, 2026, which reflects our commitment to better-position Merit for long-term, sustainable growth and enhanced profitability.

On December 20, 2024, we announced that the WRAPSODY® Cell-Impermeable Endoprosthesis has received premarket approval from the US Food and Drug Administration (FDA).

With this approval, Merit can begin commercialization of the device in the U.S.

Results of Operations

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Research and development expenses

Legal settlement

Impairment charges

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(a) Peripheral intervention products, which increased by $49.9 million, or 9.9%, from the corresponding period of 2023.

This increase was driven primarily by sales of our access, drainage, radar localization, and biopsy products.

This increase was driven primarily by sales of our access, radar localization, delivery systems, and drainage products.

(b) Cardiac intervention products, which increased by $12.5 million, or 3.5%, from the corresponding period of 2023.

This increase was driven primarily by sales of our access, hemostasis, angiography, and cardiac rhythm management/electrophysiology (“CRM/EP”) products, partially offset by a decrease in sales of our intervention products.

This increase was driven primarily by sales of our cardiac rhythm management/electrophysiology (“CRM/EP”), fluid management, and access products, partially offset by a decrease in sales of our hemostasis products.

(c) Custom procedural solutions products, which increased by $5.9 million, or 3.0% from the corresponding period of 2023.

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(d) OEM products, which increased by $12.8 million, or 7.8% from the corresponding period of 2023.

This increase was driven primarily by sales of our CRM/EP, angiography, intervention and coating products as well as our kits, partially offset by a decrease in sales of our fluid management products.

Our cardiovascular sales for the year ended December 31, 2022 were $1.118 billion, up 7.2%, when compared to the year ended December 31, 2021 of $1.043 billion.

Sales for the year ended December 31, 2022 were favorably affected by increased sales of:

(a) Peripheral intervention products, which increased by $34.7 million, or 8.6%, from the corresponding period of 2021.

This increase was driven primarily by sales of our access , embolotherapy, and radar localization products .

(b) Cardiac intervention products, which increased by $22.5 million, or 7.0%, from the corresponding period of 2021.

This increase was driven primarily by sales of our intervention, CRM/EP, and angiography products, partially offset by a decrease in sales of our fluid management products.

This increase was driven primarily by sales of our access, angiography, fluid management, intervention, coating products and kits, partially offset by a decrease in sales of our CRM/EP products.

The foregoing increase in sales for the year ended December 31, 2022 was partially offset by decreased sales of:

(d) Custom procedural solutions products, which decreased by $(3.7) million, or (1.9)% from the corresponding period of 2021.

This decrease was driven primarily by decreased sales of our critical care products , offset partially by increased sales of trays .

This increase was driven primarily by sales of our access, vertebral compression fracture, and fluid management products as well as our kits, partially offset by a decrease in sales of our CRM/EP products.

Endoscopy Sales.

Our endoscopy sales for the year ended December 31, 2024 were $54.8 million, up 48.8%, when compared to sales for the year ended December 31, 2023 of $36.8 million.

Sales for the year ended December 31, 2023 were favorably affected by increased sales of our EndoMAXX fully covered esophageal stent, Elation Balloon Dilator, and AERO Mini tracheobronchial stent, partially offset by a decrease in sales of our probes.

Our endoscopy sales for the year ended December 31, 2022 were $32.8 million, up 3.9%, when compared to sales for the corresponding period in 2021 of $31.5 million.

Sales for the year ended December 31, 2022 were favorably affected by increased sales of our Elation Balloon Dilator and other stents, partially offset by a decrease in sales of our EndoMAXX fully covered esophageal stent .

Sales for the year ended December 31, 2024 were favorably affected by sales of our recently-acquired EsophyX® Z+ Device.

Geographic Sales

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The increase in our domestic sales in 2024 was driven primarily by our U.S.

direct, OEM and oncology businesses.

sales for the year ended December 31, 2022 were $650.6 million, or 56.5% of net sales, up 6.8% when compared to 2021.

The increase in our domestic sales in 2022 was driven primarily by our U.S.

direct, sensors and OEM businesses.

direct, OEM and endoscopy businesses.

International Sales .

International sales for the year ended December 31, 2024 were $555.7 million, or 41.0% of net sales, up 4.8% when compared to 2023.

The increase in our international sales during 2023 was primarily a result of higher sales in EMEA, which increased $18.0 million or 8.3%, higher rest of world sales which increased $7.0 million or 16.6%, and higher sales in APAC, which increased $4.9 million or 2.1%, compared to the corresponding period of 2022.

International sales for the year ended December 31, 2022 were $500.4 million, or 43.5% of net sales, up 7.4% when compared to 2021.

The increase in our international sales during 2022 was primarily a result of higher sales in APAC, which increased $13.3 million or 5.9%, higher sales in EMEA, which increased $11.4 million or 5.5%, and higher rest of world sales which increased $9.9 million or 30.8%, compared to the corresponding period of 2021.

The increase in our international sales during 2024 was primarily a result of higher sales in EMEA, which increased $11.2 million or 4.8%, higher ROW sales which increased $8.9 million or 18.1%, and higher sales in our Asia Pacific region, which increased $5.3 million or 2.1%, compared to the corresponding period of 2023.

Our international sales are subject to foreign currency exchange rate fluctuations between the natural currency of a foreign country and the U.S.

Foreign currency exchange rate fluctuations, calculated by using the applicable average foreign exchange rates for the prior year decreased sales (0.5)% for the year ended December 31, 2023 compared to 2022 and decreased sales (2.2)% for the year ended December 31, 2022 compared to 2021.

Foreign currency exchange rate fluctuations, calculated by using the applicable average foreign exchange rates for the prior year decreased sales (0.6)% for the year ended December 31, 2024 compared to 2023.

Our gross profit as a percentage of sales was 47.4%, 46.4%, and 45.1% for the years ended December 31, 2024, 2023 and 2022, respectively.

The increase in gross profit as a percentage of sales for 2023, as compared to 2022, was primarily due to increased sales combined with changes in standard costs and product mix, lower freight expenses due to focus on increasing ocean freight and lowering air shipments, partially offset by higher royalty costs associated with sales and higher intangible amortization expense as a percentage of sales associated with acquisitions.

The decrease in gross profit as a percentage of sales for 2022, as compared to 2021, was primarily due to less favorable manufacturing variances and higher freight costs as a percentage of sales, partially offset by more favorable changes in standard cost and product mix, decreased intangible amortization expense as a percentage of sales, and lower obsolescence expense, among other factors.

The increase in gross profit as a percentage of sales for 2024, as compared to 2023, was primarily due to increased sales combined with favorable changes in standard costs and product mix, partially offset by higher intangible amortization expense as a percentage of sales associated with acquisitions.

Operating Expenses

Selling, General and Administrative Expenses .

Our selling, general and administrative (“SG&A”) expenses increased $31.2 million, or 9.1%, for the year ended December 31, 2023 compared to 2022 and increased $6.8 million, or 2.0%, for the year ended December 31, 2022 compared to 2021.

SG&A expenses as a percentage of sales were 29.7%, 29.8% and 31.2% for the years ended December 31, 2023, 2022 and 2021, respectively.

The increase in SG&A expenses for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily related to increased labor-related costs associated with an increase in headcount and higher variable compensation linked to company performance, increase in loss for disposal of equipment associated with restructuring, higher travel related expenses as restrictions from the pandemic continued to decline, and an increase in depreciation and amortization associated with acquisitions .

The increase in SG&A expenses for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily related to an increase in labor-related costs, including a $6.6 million increase for severance associated with restructuring and site closures, and higher travel related expenses as restrictions from the pandemic continued to decline;

partially offset by a decrease of approximately $6 million for contract termination costs incurred in 2021 to renegotiate certain terms of our September 1, 2017 share purchase agreement with IntelliMedical Technologies Pty.

(“IntelliMedical”).

In addition, f or the year ended December 31, 2022, we recorded $1.0 million of expense in connection with the negotiated settlement of a shareholder derivative lawsuit filed in the United States District Court for the District of Utah against Merit, our Chief Executive Officer, our Chief Financial Officer and certain of our directors .

Our selling, general and administrative (“SG&A”) expenses as a percentage of sales were 29.5%, 29.7% and 29.8% for the years ended December 31, 2024, 2023 and 2022, respectively.

SG&A expenses increased $26.1 million, or 7.0%, for the year ended December 31, 2024 compared to 2023.

The increase in SG&A expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily related to increased labor-related costs associated with an increase in headcount and higher variable compensation linked to company performance, an increase of stock-based compensation expense associated with new equity grants and variability in our stock price, and an increase in travel related costs associated with our sales and marketing activities, partially offset by a decrease in consulting costs primarily associated with our Foundations for Growth Program which ended in 2023.

Research and Development Expenses .

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R&D expenses increased by $4.7 million or 5.7% to $87.5 million for the year ended December 31, 2024, compared to $82.7 million in 2023.

The increase in R&D expenses for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily related to labor-related costs consistent with an increase in headcount and an increase in regulatory expense and costs for clinical trials.

R&D expenses increased by $4.3 million or 6.0% to $75.5 million for the year ended December 31, 2022, compared to $71.2 million for the year ended December 31, 2021.

The increase in R&D expenses for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily related to labor-related costs consistent with an increase in headcount.

We also incurred increased outside service and consulting costs due to higher costs from clinical trials and the implementation of the MDR in the E.U.

Legal Settlement .

For the year ended December 31, 2021, we recorded approximately $10 million of net expense in connection with an agreement in principle to settle the securities class action lawsuit in December 2019 against Merit, our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the Central District of California (the “Class Action Litigation”).

This expense includes $18.25 million of settlement related costs, net of $8.2 million of insurance proceeds .

The increase in R&D expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily related to labor-related costs consistent with an increase in headcount and an increase materials and scrap utilized in R&D, partially offset by lower regulatory costs related to Medical Device Rgulation in the E.U.

Impairment Charges .

For the year ended December 21, 2023, we recorded impairment charges of $270 thousand due to the acquisition and subsequent write-off of our equity investment in Bluegrass Vascular Technologies, Inc.

(“Bluegrass”).

For the year ended December 31, 2022, we recorded impairment charges of $2.2 million.

These impairments included $1.7 million of intangible assets for our divestiture of the STD Pharmaceutical Products Limited (“STD Pharmaceutical”) business acquired in our August 2019 acquisition of Fibrovein Holdings and $0.5 million impairment of our equity investment in XableCath, Inc.

as this business ceased operations.

For the year ended December 31, 2021 we recorded impairment charges of $4.3 million.

These impairments included $1.6 million of intangible asset and $1.3 million of property and equipment due to the planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc Limited (“ArraVasc”) and $1.4 million of impairments of certain right-of-use (“ROU”) operating lease assets due to site consolidation decisions and changes in our projected cash flows for the underlying lease assets.

During the year ended December 31, 2024, we recognized no impairment costs.

Contingent Consideration Expense .

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Acquired In-process Research and Development .

During the year ended December 31, 2023, we incurred in-process research and development charges of $1.6 million p rimarily associated with the assets we acquired from Advanced Radiation Therapy, LLC (“ART”) on May 1, 2023.

We incurred $6.7 million for in-process research and development charges associated with our acquisition of Restore Endosystems, LLC (“Restore Endosystems”) during the year ended December 31, 2022 .

We did not incur in-process research and development charges during the year ended December 31, 2021.

During the year ended December 31, 2024, we recognized no acquired in-process research and development costs.

Operating Income

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Our cardiovascular operating income for the year ended December 31, 2024 was $150.2 million, compared to cardiovascular operating income of $114.4 million for the year ended December 31, 2023.

This increase in cardiovascular operating income was primarily related to higher sales and gross profit, decreased impairment charges ($270 thousand in 2023 compared to $2.2 million in 2022), decreased acquired in-process research and development charges, and decreased contingent consideration expense ($1.7 million in 2023 compared to $4.6 million in 2022), partially offset by higher SG&A and R&D expenses.

Our cardiovascular operating income for the year ended December 31, 2022 was $80.9 million, compared to cardiovascular operating income of $53.4 million for the year ended December 31, 2021.

This increase in cardiovascular operating income was primarily related to higher sales, decreased legal settlement costs, including $10 million in 2021 in connection with an agreement in principle to settle a securities class action lawsuit, and decreased impairment charges within our cardiovascular operating segment ($2.2 million in 2022 compared to $4.3 million in 2021), partially offset by increased labor-related and travel costs, and increased contingent consideration expense ($4.6 million in 2022 compared to $3.2 million in 2021).

This increase in cardiovascular operating income was primarily related to higher sales and gross profit, decreased acquired in-process research and development charges, and decreased contingent consideration expense ($0.4 million in 2024 compared to $1.7 million in 2023), partially offset by higher SG&A and R&D expenses.

Endoscopy Operating Income.

Our endoscopy operating income for the year ended December 31, 2024 was $5.5 million, compared to operating income of $9.5 million for the year ended December 31, 2023.

This increase in endoscopy operating income relative to 2022 was primarily due to higher sales and gross profit, partially offset by higher SG&A expenses.

Our endoscopy operating income for the year ended December 31, 2022 was $6.6 million, compared to operating income of $7.5 million for the year ended December 31, 2021.

This decrease in endoscopy operating income relative to 2021 was primarily due to decreased gross margin percentage as a result of changes in product mix and higher shipping costs and higher labor-related costs, partially offset by higher sales.

This decrease in endoscopy operating income relative to 2023 was primarily due to higher SG&A expense associated with the acquisition and integration of operations acquired from EGS and higher R&D expenses, partially offset by higher sales.

Other Income (Expense)

Our other expense for the years ended December 31, 2024, 2023 and 2022 was $5.7 million, $11.9 million, and $4.9 million, respectively.

The increase in other expense for 2023 compared to 2022 was principally the result of an increase in interest expense associated with increased borrowings under our Credit Agreement, issuance of convertible debt and rising interest rates, partially offset by an increase in interest income associated with an increase in cash and cash equivalents.

The decrease in other expense for 2022 compared to 2021 was principally the result of an increase in other income associated with realized and unrealized foreign currency gain (loss), partially offset by an increase in interest expense associated with rising interest rates and an increase in other expense related to the divestiture of the STD Pharmaceutical business.

The decrease in other expense for 2024 compared to 2023 was principally the result of an increase in interest income associated with and increased cash and cash equivalents and reduced borrowings under the Amended Fourth A&R Credit Agreement, partially offset by interest expense associated with outstanding convertible debt.

Effective Tax Rate

Our provision for income taxes for the years ended December 31, 2024, 2023 and 2022 was a tax expense of $29.6 million, $17.7 million and $8.1 million, respectively, which resulted in an effective income tax rate of 19.8%, 15.8%, and 9.8%, respectively.

The increase in the effective income tax rate for 2023 compared to 2022 was primarily the result of decreased benefit from items such as stock-based compensation, the foreign-derived intangible income (FDII) deduction, as well as the foreign tax credits being utilized.

The decrease in the effective income tax rate for 2022 compared to 2021 was primarily the result of a benefit from the change in foreign withholding taxes on unremitted foreign earnings due to the restructuring of our foreign entities, more foreign tax credits being utilized, as well as additional benefit from the FDII deduction.

The increase in the effective income tax rate for 2024 compared to 2023 was primarily the result of decreased benefit from items such as stock-based compensation and foreign tax credit utilization.

Our net income for the years ended December 31, 2024, 2023 and 2022 was $120.4 million, $94.4 million, and $74.5 million, respectively.

The increase in net income for 2023, when compared to 2022, was primarily related to higher sales, higher gross margin as a percentage of sales, decreased impairment charges ($270 thousand in 2023 compared to $2.2 million in 2022), decreased contingent consideration expense ($1.7 million in 2023 compared to $4.6 million in 2022), decreased acquired in-process research and development expense ($1.6 million in 2023 compared to $6.7 million in 2022);

partially offset by higher SG&A and R&D expenses .

The increase in net income for 2022, when compared to 2021, was primarily related to higher sales, decreased legal settlement costs primarily due to the $10.0 million settlement in 2021 in connection with an agreement in principle to settle a securities class action lawsuit, and decreased impairment charges ($2.2 million in 2022 compared to $4.3 million in 2021);

partially offset by higher SG&A expenses due to higher labor-related and travel costs , as well as increased contingent consideration expense of $4.6 million in 2022 compared to $3.2 million in 2021 .

The increase in net income for 2024, when compared to 2023, was primarily related to higher sales, higher gross margin as a percentage of sales, decreased contingent consideration expense ($0.4 million in 2024 compared to $1.7 million in 2023), decreased acquired in-process research and development expense ($0 in 2024 compared to $1.6 million in 2023) and decreased other expenses;

partially offset by higher SG&A, R&D, and income tax expense .

Liquidity and Capital Resources

Capital Commitments and Contractual Obligations

Our most significant contractual obligations as of December 31, 2023 included total long-term debt obligations of $846.6 million, of which $0.0 million is recorded in current liabilities, interest payments on this debt, contingent consideration liabilities of $3.4 million, of which $0.4 million is recorded in current liabilities, and operating lease liabilities of $68.3 million, of which $12.1 million is recorded in current liabilities.

Our most significant contractual obligations as of December 31, 2024 included total long-term debt obligations of $747.5 million, interest payments on this debt, contingent consideration liabilities of $3.5 million, of which $0.4 million is recorded in current liabilities, and operating lease liabilities of $65.1 million, of which $10.3 million is recorded in current liabilities.

Additional information about these obligations is contained in Notes 8, 15 and 17 to our consolidated financial statements set forth in Item 8 of this report.

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● Net income was $120.4 million and $94.4 million for the years ended December 31, 2024 and 2023, respectively.

● Cash used for inventories was $(32.1) million and $(47.9) million for the years ended December 31, 2023 and 2022, respectively.

The increase in inventory was principally associated with our strategy to proactively invest in our inventory balances to encourage high customer service levels, as well as to build bridge inventory for production line transfers and increases in safety stock due to vendor supply delays .

● Cash provided by (used for) accounts payable was $(7.3) million and $12.7 million for the years ended December 31, 2023 and 2022, respectively, primarily due to an increase in operating expenses and changes in the timing of vendor payments.

● Cash used for inventories was $2.3 million and $32.1 million for the years ended December 31, 2024 and 2023, respectively due primarily to efforts to normalize inventory levels following prior year investments to build bridge inventory for production line transfers and increases in safety stock due to vendor supply delays.

● Cash provided by (used for) accrued expenses was $9.7 million and $(2.5) million for the years ended December 31, 2024 and 2023, respectively, primarily due to an increase in accrued interest and the associated expense related to our convertible debt.

● Cash paid for income taxes was $45.0 million and $31.5 million for the years ended December 31, 2024 and 2023, respectively, primarily due to increases in income before tax.

Net cash provided by operating activities decreased $32.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Significant changes in operating assets and liabilities affecting cash flows during these years included:

● Net income was $74.5 million and $48.5 million for the years ended December 31, 2022 and 2021, respectively.

This improvement in net income was partially offset by an increase in the non-cash adjustment for deferred income taxes within the statement of cash flows of $(14.9) million and $(4.6) million for the years ended December 31, 2022 and 2021, respectively.

● Cash (used for) accounts receivable was $(15.1) million and $(8.6) million for the years ended December 31, 2022 and 2021, respectively, due primarily to increases in sales volume,

● Cash provided by (used for) other receivables was $4.2 million and $(10.4) million for the years ended December 31, 2022 and 2021, respectively, due primarily to the collection of approximately $8.2 million of insurance proceeds in connection with the consolidated securities class action lawsuit we settled in April 2022,

● Cash used for inventories was $(47.9) million and $(25.2) million for the years ended December 31, 2022 and 2021, respectively, due primarily to efforts to normalize inventory levels as well as build bridge inventory for production line transfers and increases in safety stock due to vendor supply delays, and

● Cash provided by (used for) accrued expenses was $(16.4) million and $36.5 million for the years ended December 31, 2022 and 2021, respectively, primarily related to payment of a legal settlement accrual of $18.25 million in 2022 associated with the agreement in principle to settle the Class Action Litigation and increased labor-related cost accruals associated with higher commissions and bonus expense in the prior-year period, among other items.

Cash flows used in investing activities.

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We anticipate that we will spend approximately $55 to $60 million in 2025 for property and equipment.

Cash outflows invested in acquisitions for the year ended December 31, 2023 were $138.3 million and were primarily related to payments required by our asset purchase agreements with AngioDynamics ($100 million), Bluegrass ($32.7 million), and ART ($1.5 million), and our transaction with Solo Pace ($4.0 million).

Cash outflows invested in acquisitions for the year ended December 31, 2022 were $8.3 million and were primarily related to our $3.0 million upfront payment in our purchase of Restore Endosystems, our $2.5 million payment in our purchase of BioTrace Medical, Inc., and our additional equity investment in FluidX Medical Technology, Inc.

(“Fluidx”) of $1.4 million.

Cash outflows invested in acquisitions for the year ended December 31, 2021 were $7.2 million and were primarily related to $4.1 million for the settlement of deferred payments and the working capital adjustment associated with our acquisition of KA Medical, LLC (“KA Medical”) completed in November 2020 and $2.7 million for an equity investment in Fluidx .

Cash outflows invested in acquisitions and other equity investments for the year ended December 31, 2024 were $320.2 million and were primarily related to payments required by our asset purchase agreements with Cook Medical Holdings LLC ($210.0 million), Endogastric Solutions, Inc.

($105.0 million) and Scholten Surgical Instruments, Inc.

($3.0 million).

Cash outflows invested in acquisitions for the year ended December 31, 2023 were $134.5 million and were primarily related to payments required by our asset purchase agreements with AngioDynamics, Inc.

($100 million), Bluegrass Vascular Technologies, Inc.

($32.7 million) and ART ($1.5 million).

Cash outflows invested in acquisitions for the year ended December 31, 2022 were $6.9 million and were primarily related to our $3.0 million upfront payment in our purchase of Restore Endosystems LLC and our $2.5 million payment in our purchase of BioTrace Medical, Inc.

Cash flows provided by (used in) financing activities.

Cash provided by (used in) financing activities for the years ended December 31, 2023, 2022 and 2021 was $559.3 million, $(60.3) million, and $(98.4) million, respectively.

In 2023 we issued convertible debt of $747.5 million, paid $66.5 million for the purchase of capped call options, and decreased our net borrowings under our Fourth Amended Credit Agreement by $99.1 million.

Cash (used in) provided by financing activities for the years ended December 31, 2024, 2023 and 2022 was $(60.0) million, $559.3 million, and $(60.3) million, respectively.

In 2024 we decreased our net borrowings under our Amended Fourth A&R Credit Agreement by $99.1 million and had cash proceeds from the issuance of common stock of $40.9 million.

In 2023 we issued convertible debt of $747.5 million, paid $66.5 million for the purchase of capped call options, and decreased our net borrowings under our Amended Fourth A&R Credit Agreement by $99.1 million.

In 2022 we decreased our net borrowings under our Third Amended Credit Agreement by $44.9 million and paid contingent consideration of $32.9 million, which is classified as a financing activity, principally related to our acquisitions of Cianna Medical Inc.

(“Cianna Medical”) and Vascular Insights LLC (“Vascular Insights”).

In 2021 we decreased our net borrowings under our Third Amended Credit Agreement by $108.5 million and paid contingent consideration of $10.7 million, which is classified as a financing activity, principally related to our acquisition of Vascular Insights.

As of December 31, 2023, we had outstanding borrowings of $846.6 million and issued letter of credit guarantees of $2.7 million, with additional available borrowings of approximately $626 million under the Fourth Amended Credit Agreement, based on the leverage ratio required pursuant to the Fourth Amended Credit Agreement.

As of December 31, 2024, we had outstanding borrowings of $747.5 million and issued letter of credit guarantees of $2.9 million, with additional available borrowings of approximately $697 million under the Amended Fourth A&R Credit Agreement, based on the leverage ratio required pursuant to the Amended Fourth A&R Credit Agreement.

Our interest rate as of December 31, 2024 was a fixed rate of 3.0% on our Convertible Notes.

Our interest rate as of December 31, 2023 was a fixed rate of 3.0% on our Convertible Notes, a fixed rate of 3.39% on $75 million as a result of an interest rate swap, and a variable floating rate of 7.21%% on $24.1 million.

Our interest rate as of December 31, 2022 was a fixed rate of 2.71% on $75 million as a result of an interest rate swap and a variable floating rate of 5.38% on $123.2 million.

The foregoing fixed rates are exclusive of potential future changes in the applicable margin associated with our variable rate debt under the Fourth Amended Credit Agreement.

See Note 8 and Note 9 to our consolidated financial statements set forth in Item 8 of this report for additional details regarding the Fourth Amended Credit Agreement, Convertible Notes, and our interest rate swap.

The foregoing fixed rates are exclusive of potential future changes in the applicable margin associated with our variable rate debt under the Amended Fourth A&R Credit Agreement.

See Note 8 Debt and Note 9 Derivatives to our consolidated financial statements set forth in Item 8 of this report for additional details regarding the Amended Fourth A&R Credit Agreement, Convertible Notes, and our interest rate swap.

We currently believe that our existing cash balances, anticipated future cash flows from operations and borrowings under our long-term debt agreements will be adequate to fund our current and currently planned future operations for the next twelve months and the foreseeable future.

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Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements set forth in Item 8 of this report.

Our significant accounting policies are summarized in Note 1 Organization and Summary of Significant Accounting Policies to our consolidated financial statements set forth in Item 8 of this report.

While these significant accounting policies affect the reporting of our financial condition and results of operations, the SEC has requested that all registrants address their most critical accounting policies.

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We allocate any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination to goodwill.

We base the fair value of identifiable intangible assets acquired in a business combination on valuations that use information and assumptions that a market participant would use, including assumptions for estimated revenue projections, growth rates, cash flows, discount rates, useful life, and other relevant assumptions.

We base the fair value of identifiable intangible assets acquired in a business combination on valuations that use information and assumptions that a market

participant would use, including assumptions for estimated revenue projections, growth rates, cash flows, discount rates, useful life, and other relevant assumptions.

We test our goodwill balances for impairment annually as of July 1, or whenever impairment indicators arise.

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In-process technology intangible assets, which are not subject to amortization until projects reach commercialization, are assessed for impairment at least annually and more frequently if events occur that would indicate a potential reduction in the fair value of the assets below their carrying value.

During the years ended December 31, 2022 and 2021, we identified indicators of impairment associated with certain acquired intangible assets within the asset groups based on our qualitative assessment.

During the years ended December 31, 2022 and 2021, we recorded total impairment charges associated with intangible assets in our cardiovascular segment of $1.7 million and $1.6 million, respectively.

We did not have any impairments for the year ended December 31, 2023.

During the year ended December 31, 2022, we identified indicators of impairment associated with certain acquired intangible assets within the asset groups based on our qualitative assessment.

During the year ended December 31, 2022, we recorded total impairment charges associated with intangible assets in our cardiovascular segment of $1.7 million.

We did not have any goodwill or intangible asset impairments for the years ended December 31, 2024 and 2023.

These expenses are reflected within impairment charges in our consolidated statements of income.

The primary factors driving impairment of certain intangible assets were planned closure and restructuring activities and uncertainty about future product development and commercialization associated with certain acquired technologies.

See Note 5 to our consolidated financial statements set forth in Item 8 of this report for additional details regarding impairments of intangible assets.

Contingent Consideration.

Contingent consideration is an obligation by the buyer to transfer additional assets or equity interests to the former owner upon reaching certain performance targets.

Certain of our business combinations involve the potential for the payment of future contingent consideration, generally based on a percentage of future product sales or upon attaining specified future revenue or other relevant milestones.

In connection with a business combination, any contingent consideration is recorded at fair value on the acquisition date based upon the consideration expected to be transferred in the future.

We base the fair value of contingent consideration obligations acquired in a business combination on valuations that use information and assumptions that a market participant would use, including assumptions for estimated revenue growth rates, discount rates, probabilities of achieving regulatory approval, performance, or revenue-based milestones and other relevant factors.

We re-measure the estimated liability each quarter and record changes in the estimated fair value through operating expense in our consolidated statements of income.

Significant increases or decreases in our estimates could result in changes to the estimated fair value of our contingent consideration liability, as well as the result of changes in the timing and amount of revenue estimates and changes in the discount rate or periods.

Our revenue milestones for the acquisition of Brightwater Medical, Inc.

includes payment thresholds.

This and other similar contract features of our contingent consideration liabilities create sensitivity regarding the occurrence, timing, and amount of future payments.

For the years ended December 31, 2023, 2022 and 2021, we recognized contingent consideration expense of $1.7 million, $4.6 million and $3.2 million, respectively, from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions.

Changes in the fair value of our contingent consideration liabilities were primarily attributable to changes in anticipated sales growth in the acquired products and the anticipated timing of milestone payments.

See Note 15 to our consolidated financial statements set forth in Item 8 of this report for additional details regarding our contingent liabilities.

See Note 5 Goodwill and Intangible Assets to our consolidated financial statements set forth in Item 8 of this report for additional details regarding impairments of intangible assets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis